Whoever at Fidelity said that this distribution paid to the estate could be rolled over was simply wrong. Given that the only option was a distribution to the estate, that incorrect information is of no real consequence in that there is nothing that could have been done to be able to continue to defer taxes on these funds.
As I explained earlier, the estate will generally pass this distributable net income along with the tax liability through to the trust and the trust will similarly pass this distributable net income and its associated tax liability through to the trust beneficiaries (unless the trust document specifies otherwise). The estate and trust will each file Form 1041 and issue Schedules K-1. The estate can take deductions for certain fiduciary expenses, so the amount of taxable income passed through could be less than the full amount of the distribution. Given the multiple tax returns involved, it might make sense to enlist the services of a CPA who is familiar with estates and trusts.
